A domestic property letting company was lent an amount of money by the director to purchase property to let. The company has recently sold one of it's properties and would like to use the profit from the sale to repay the loan amount to the director. Is there any reason why this would not be allowed by HMRC.
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Depends if, when repaying loan to director, company is solvent and has met all its liabilities to its other creditors ; for instance does company need to consider CT it may owe to HMRC re any profit on the sale?
As mentioned above the use of profits after tax to repay loans has no direct bearing on the level of profits subject to tax.
Repaying a loan does not go into the income statement, it will be Dr Loan, Cr Bank, a transaction only impacting the constituent parts of the balance sheet.
You no doubt have the cost/valuation of the property in the previous accounts, you need to journal it out
Dr Revaluation reserve (if there is one)
Dr Gain/loss disposal (property disposal)
Cr Investment property
Above may play/post slightly differently if you are within FRS102, you possibly will need to also consider deferred tax if previously provided.
The tax on the Invest Prop sale (it is an investment property ?) will be proceeds (120k) less selling costs less original cost (if after March 82) less enhancement costs (if any) less indexation, that is presuming the property was an investment property.
Tax will then be calculated on company profits and company gains offset where possible by losses and non trade loan relationship debits.
You may want an accountant to deal with all this, especially if you have say losses and non trade loan relationship debits and credits.